F2 - Matching Principle & Foreign Currency accounting Flashcards Preview

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Flashcards in F2 - Matching Principle & Foreign Currency accounting Deck (37)
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1
Q

Revenue recognition for sales of goods (IFRS)

A
  1. Revenue and cost incurred for the transaction can be measured reliably.
  2. Economic benefit from the transaction will flow to the entity.
  3. Risk and rewards of ownership will transfer to the buyer.
  4. The entity don’t retain any managerial involvement.
2
Q

Revenue recognition for rendering services (IFRS)

A
  1. Revenue and cost incurred for the transaction can be measured reliably.
  2. Economic benefit from the transaction will flow to the entity.
  3. Stage of completion of the transaction can be measured reliably.
3
Q

Difference between Realization and Recognition

A

Realization is what happens in real world; when the entity obtain cash or the right to receive cash.

Recognition is the actual recording of the transaction.

4
Q

Brief on Accrual accounting.

A

It records the transaction and events as they occur, not when cash is received or expended.

5
Q

Revenue of recognition when the right of return exist

A
  1. Sales price is substantially fixed.
  2. The buyer assumes all risk of loss.
  3. The buyer paid some of the consideration.
  4. The product sold is substantially completed.
  5. The amount of future returns can be reasonably estimated.
6
Q

When initial franchise fees are earned

A

Earned when substantial performance on future services has occurred.

7
Q

What does substantial performance means;

A
  1. The franchisor has no obligation to refund any payment.
  2. Initial services required by franchisor has been performed (site selection, supervision of construction, quality control)
  3. All other sales conditions have been met; are considered met on first day of operations to the franchisee.
8
Q

Intangible assets classification;

A
  1. Identifiable such as patent, copy rights, franchise.

2. Unidentifiable such as good will.

9
Q

Intangible assets accounting treatment

A

They are recorded at cost (Capitalized) along with legal fees or successful law suit and registration fees.

Other costs are expensed immediately.

10
Q

R and D under GAAP and IFRS

A

IFRS; research is expensed while development Is capitalized.

GAAP; both are expensed immediately.

11
Q

Amortization and Impairment for Intangible assets.

A

Identifiable assets should be amortized and impaired.

unidentifiable assets should be impaired only.

12
Q

Intangible assets impairment under IFRS

A
  1. Cost Model; the asset should be recorded at cost and adjusted for amortization and impairment.
  2. Revaluation Model; asset should be recorded at cost first the revaluated at fair value subsequent revaluation date and adjusted for amortization and impairment.
13
Q

Impairment Loss calculation under IFRS

A

Should subtract carrying value by the GREATER of ;

  1. NRV ( FV - Cost to Sell)
  2. Value in use.
14
Q

Revaluation accounting treatment for intangible assets under IFRS

A
  1. Revaluation Loss; Goes to I/S except if it reverse subsequent revaluation gain it goes to OCI to reduce revaluation surplus.
  2. Revaluation Gain; Goes to OCI except if it reverse subsequent revaluation loss it goes to I/S to reduce previous revaluation loss.
15
Q

Patent amortization life

A

The SHORTER of its estimated life or remaining legal life.

16
Q

R and D costs are expensed except if;

A
  1. Materials, equipment, facilities have alternative future uses (can be used on more than 1 project); depreciation should be expensed.
  2. Costs of any undertaken on behalf of others (the buyer should consider it as expense while the seller should capitalize it).
17
Q

Accounting treatment for computer software development cost.

A
  1. Before technological feasibility should be expensed

2. After technological feasibility should be capitalized

18
Q

For Impairment loss for Intangible assets treatment under GAAP

A

Impairment loss it goes to I/S under continuing operations unless the impairment is related to discontinued operations.

please check book P.22

19
Q

When revenue is recognized under completed contract method

A

Only on completion of the contract

20
Q

Requirements to use completed contract method

A
  1. It is difficult to estimate the cost of a contract in progress.
  2. The projects are short term duration.
21
Q

Balance sheet presentation for completed contract method

A

If cost (work performed) > billings to customer then it is assets, If cost (work performed)

22
Q

Accounting treatment for percentage of completion method

A

P. 133 or P.13 in F2

23
Q

Disclosure requirements for long term constructions

A

No special disclosure is required because it is the nature of contractor’s business.

24
Q

Difference between percentage of completion and installment sales

A

Percentage of completion represents accrual method while installment sales represents cash basis.

25
Q

Installment sales computations;

A
  1. Earned gross profit = collections * GP %
  2. Deferred GP = Ending AR * GP%
  3. Collections = GP / GP% or Sales - Ending AR
26
Q

Percentage of completion computations;

A
  1. GP = Contract price - Estimated TC
  2. % of completion = YTD cost / Estimated TC
  3. GP earned = 1 * 2

Loss is recognized in full in the year it is discovered.

27
Q

Brief on Cost Recovery Method

A

No profit is recognized on a sale until all costs have been recovered; at time of sale all expected profit on sale is recorded as deferred gross profit.

Collections are first applied to the recovery of product cost, collections after all costs have been recovered are recognized as profit.

It is similar to installment sales except that receivables are collected over an extended period & there is no reasonable basis for estimating their collectability.

28
Q

Accounting for nonmonetary exchanges (GAAP)

A
  1. Have commercial substance (FV approach used) - gain or loss recognized in full
  2. Lack commercial substance - loss recognized, for gain specific rules.
29
Q

Gain or loss calculation if commercial substance exist

A

Gain/Loss = FV of asset given - CV of asset given

30
Q

Accounting for nonmonetary exchanges (IFRS)

A
  1. Exchange of similar activities - cant recognize gain or loss
  2. Exchange of dissimilar activities - recognize gain or loss.
31
Q

Gain recognition under exchange of nonmonetary transaction if Lacks Commercial Substance

A
  1. No boot is received= no gain
  2. Boot is paid = no gain
  3. Boot is received = Recognize proportional gain (
32
Q

Foreign currency accounting

A
  1. Foreign currency transaction; buy from and sell in a foreign currency.
  2. Foreign currency translation; conversion of F/S of a foreign entity into F/S expressed in a domestic currency.
33
Q

How to determine functional currency

A

Where entity generates and expends cash.

34
Q

Foreign currency translation methods;

A
  1. Remeasurement method; plug currency gain/loss from the difference between assets and liabilities in B/S to get net income.
  2. Translation method; plug translation gain/loss “translation adjustment” to OCI under foreign translation adjustments.
35
Q

Currency rates used under Remeasurment method

A

B/S items:

  1. Monetary items = current rate (spot rate)
  2. Non-monetary items = historical rate

I/S items:

  1. Non-balance sheet items = weighted AVG.
  2. B/S items = historical rate; such as depreciation, cost of good sold, amortization.
36
Q

Currency rates used under Translation method

A

I/S items using weighted AVG

B/S items:

  1. Asset = current ret
  2. Liability = current rate
  3. Common stock = historical rate
37
Q

Foreign F/S translation methods example

A

P.153 or P.51 F2